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Although there had been some concessions to private capital under the old Assad, what was to rapidly accelerate the process and lead to a qualitative change was the collapse of the Eastern Bloc in 1989 and the Soviet Union in 1991. The system the Assad regime had modelled itself on collapsed like a house of cards. And just as the Soviet model attracted the young officers who carried out the coup in 1963, now its collapse shook their confidence in that same regime.

Impact on Syria of the collapse of the USSR

None of them had ever understood the limitations of the Soviet Union, where the planned economy was not under the control of the working class, but was in the hands of a privileged bureaucratic elite. In fact they had been attracted to the Soviet model precisely because it seemed to give results in terms of economic growth.

Now they reacted in an equally empirical manner and began to turn much more boldly to capitalist measures. After 1990-91, having lost a solid point of reference in the Soviet Union – and aid – the regime embarked on a road that would eventually lead to the dismantling of the old planned system. A sign of how things were changing was the fact that in 1990 businessmen entered the Syrian parliament and in 1991 Law No. 10 was passed to encourage private investments.

As the process towards the restoration of capitalism gathered strength, divisions opened up within the regime, between the so-called “conservatives” who stood for the continuity of the old system and the “modernisers” who were for gradual reform, a slow controlled transition towards a market economy. The former represented all the apparatchiks of the state owned economy who risked losing much in a process of privatisation. The latter represented the growing pressures of world capitalism and the desire of a section of the bureaucracy to become direct owners of the means of production. This division was very similar to the divisions that emerged within the Chinese bureaucracy as the economy moved in the direction of capitalism from the 1980 onwards.

In spite of all this, the Bush administration’s approach to Syria was to treat it as a “rogue state”, in the same way as it treated Iran or North Korea. It imposed sanctions and did all in its power to isolate the regime. The more intelligent of the US bourgeois, however, were for “engaging” with the Syrian private sector and establishing joint ventures, investing in the country, etc., as a means of pulling Syria into the US sphere of influence and accelerating further the country’s transition to capitalism.

In an attempt to circumvent this isolation, the regime turned to the European Union and in 2003 began negotiations to acquire Associate status with the EU, but this failed to get the desired results and eventually Syria was forced to turn to countries like Iran and Russia. For example in 2005 Russia cancelled 73% of what Syria owed it. Capitalist Russia saw the opportunity of winning back spheres of influence it had lost in the past, especially as the Iraq war was unfolding as the US widened its influence in the region with a direct military presence.

In 2004 Assad went to Beijing on an official visit, again seeking a point of support as the US attempted to tighten the economic stranglehold on the country. China provided the model the Syrian regime required, for it had economic liberalisation, i.e. a growing role for the private sector, but without any hint of moving towards a western style parliamentary democracy. Authoritarian rule continued without so-called “political reform”.

It was in this period, in 2004 that the regime also sought openings towards both Israel and the United States. The result was that the regime agreed to withdraw its troops from the Lebanon. In April 2005 the last Syrian soldiers withdrew from Lebanon after a 29-year presence in the country. The west, Washington included, welcomed the role that Syria had played in Lebanon.

What we have to understand about Lebanon was that it had played an important role in Syria’s economy as a source of investment. a sort of Hong Kong for Syrian businessmen interested in having greater access to the global market, particularly in terms of trade, financing and banking services.

Having lost direct control over Lebanon it now became more urgent that other sources of investment be found. The result was a further acceleration of the process of restoration of capitalism.

Crony capitalism

It was in the 2000s that the process of capitalist restoration really accelerated, but the kind of capitalism being created was not to the liking of US or European imperialism. It was a “crony capitalism” whereby the process of privatisation saw the transfer of state property to powerful individuals from within the regime or with close links to the regime, family members of people at the top of the regime.

One such figure is Rami Makhlouf, a cousin of President Bashar al Assad. He controls Syria's telecommunications (Syriatel), its duty-free stores, a large part of its oil industry, air transport, a TV network and much real estate. Before the present conflict erupted he was reported as owning assets worth some $5 billion.

What kind of capitalism was being developed can be seen by the fact that Makhlouf was able to keep the Egyptian telecommunications company, Orascom, out of the Syrian market because he had the backing of the state. He was granted an 8-year license from the state, giving him a practical monopoly of the mobile network. By 2009 Makhlouf had acquired shares in nine of the 12 private banks. In fact this individual dominated the Syrian private sector.

There is also the example of M. Hamcho, who rose very quickly as a powerful businessman. The fact that he married Maher al-Assad’s sister-in-law indicates how he rose within the “business community”. In these conditions corruption was rife.

By now, the public sector, the state owned companies, no longer functioned according to a plan, but according to the laws of the market, as state capitalist companies. And at the same time a private “crony capitalist” sector was developing. On March 10, 2009 the stock exchange, which had earlier been stalled, was finally set up.

After the1996 economic crisis, during which it was only oil that saved the regime, the “need for structural reforms” was being posed ever more sharply. That explains why Bashar al-Assad placed “economic reform” at the centre of his “discourse”.

The “Group of 18” led by the Ba’ath economist Mohammed Hussein, who later became Deputy Prime Minister in 2001 and Minister of Finance in 2003, was a group of university professors, “experts”, businesspeople, liberals, etc., called on to oversee the process of privatisation.

Bashar nominated so-called “independents” to positions of responsibility in the government. Many economists and engineers educated in European or American universities were invited to return to the country to help run the “reforms”, i.e. the beginning of the process of opening up the Syrian market to private investors. This was a clear signal that Assad wanted to speed up the process. Non-Ba’ath party members were given key ministries. These included such figures as Issam Zaïm, Minister for Planning in 2000 and then Minister of Industry in 2001, who was an expert from the UNDP (United Nations Development Programme); Ghassan Rifaï, who was made Minister of Economics and Commerce in late 2001, an official of the World Bank; and Nibras Fadel, an expatriate technocrat, was made an adviser to the President in charge of reforming the state.

As well as these changes in the composition of the government, clearly part of a programme of opening up the economy to capitalism, there was also the dismantling of two state monopolies. In December 2011 the regime approved the setting up of private banks and a stock exchange, and the following year in February 2001 the government approved the setting up of privately run universities.

However, these measures come up against strong resistance from the “conservative” wing of the regime, and the private banks did not actually materialise at that time. It was this slowness in the development of a private banking sector that explains the important role played by Lebanese banks who filled the vacuum and provided the necessary credit to business.

“Social Market Economy”

The idea of the “Social Market Economy” – almost a photocopy of the wording of Chinese official positions – was adopted by the regime in order to disguise the real nature of what was happening, a transfer of property from the state to private hands.

This model involved a change in the way the state-run industries functioned. Now they were to operate according to the laws of the market, but without privatisations and without cutting jobs.

Here we see resistance to any fully-fledged programme of privatisations and opening up to foreign capital. But was it a resistance to capitalism per se? It was not. As in China, the tops of the regime wanted a model of capitalism that would allow the same privileged caste at the top to maintain its positions. The manner in which this was to be done was by assuring that state property was transferred to members of the ruling elite, or members of their families and close associates.

The year 2005 [after ending the occupation of Lebanon] marked an important turning point in the whole process. A the Ba’ath party congress those in favour of the so-called “social market economy” defeated those who wanted to defend the status quo. The road that was adopted was that of favouring the creation of oligopolies in the hands of cronies of the regime. It was a decisive step in the direction of capitalism.

What angered western imperialists was the fact that capitalism was being introduced into Syria under the strict control of regime cronies. The imperialists were demanding a complete opening up of the Syrian economy, as they were seeking further fields of investment for their own multinational corporations.

The regime preferred to keep things “in-house” and proceed towards capitalism by transforming sections of the bureaucracy into direct owners of the means of production. It was this environment which allowed figures such as Rami Makhlouf, referred to above, to emerge.

By 2007, within two years, a myriad of private insurance companies and banks were operating in the country. The banking sector was open to private investment as was foreign trade. To give an idea of the changes that were taking place we can look at the statistics for the number of products that were banned from being imported. In September 2003 the number was 11,000, but by January 2007 this figure had fallen to 1000.

The regime had thus established the conditions for the development of the free market, i.e. capitalism. This was part of the regime’s attempt to break out of the isolation imposed on it, particularly by the Americans.

Lebanon was also a big source of bank lending in this period. Because of the US boycott, and after the EU in 2004 had refused “associate” relationship, the regime turned to Turkey and Iran for help, and Iran in particular was only too willing to invest, itself a victim of US-imposed sanctions. And in 2006, as a result of the liberalisation, there was a financial boom, with big investments, mainly of a speculative nature, in real estate.

In the decade 2000-2010 we see a qualitative change taking place, where the movement away from economic planning and towards capitalism is finally consolidated. If we compare the years 2001-05 (the 9th 5-year plan) to 2006-10 (10th 5-year plan) we get the following picture. In the first half of the decade the public sector continued to dominate, but with a change in the way the state owned enterprises functioned. As we have seen they were now transformed into state capitalist enterprises. In the second half of the decade the private sector really took off. In 2007 already 70% of the Syrian economy was in private hands.

The “liberals” couldn’t have asked for more, as lavish profits could now be made. The real estate boom was an example of this. In the years 2003-04 real estate prices had grown by 59%, but in the subsequent three years, 2005-07, they went up by 400%!

At the same time we see the repatriation of old Syrian capitalists and bankers who had fled the country, many of them doing business in Lebanon. This was the return of those bourgeois who left the country after the nationalisations of the 1960s. However, there was also a bourgeois layer that had been tolerated ever since the old Assad had taken control of the regime in the 1970s. These “independent” capitalists had been tolerated as long as they did not coalesce as a major group, but operated as individuals, thus not posing a threat to the regime.

However, the flip-side to all this bonanza of profit-making and speculation was the growing pauperisation of a section of the population, as we referred to at the beginning of this article. The growing social polarisation saw the gap between the rich and the poor getting ever bigger.

In 2005 5.3 million people (30% of the population) were living below the poverty line, and of these 2 million (11.4%) could not meet their food requirements. The population continued to grow significantly, adding more and more young people to the list of those seeking work. At the same time there was continuing mass exodus from the rural areas to the urban areas, adding to the social problems in the cities. Damascus alone was growing by 150,000 a year. This created an urban scenario where the wealthy parts of town were surrounded by suburbs of misery.

Inflation took off in these conditions. In 2003 it had only been 1.3%, by the spring of 2007 it hit 18%. But the prices of basic consumer goods were going up even faster, with an increase of 60% in 2007.

Another key indicator of social progress, the literacy rate of the country started to worsen. The number of illiterates was growing. This shows the difference between the progressive measures of the past, which saw illiteracy go down, and the new “market” measures which saw a worsening of the education system.

Here too, we see the social polarisation. While basic education for the masses was being cut, in the period 2000-07 eight private universities were set up to cater for the elite. We had growing opulence and wealth in the midst of widespread misery. The number of luxury hotels, four-wheel drive cars, Mercedes, etc., was going up while a large layer of the population had to survive on $2 a day! In 2004 the poorest 20% of the population accounted for only 7% of overall spending; while the richest 20% accounted for 45% of spending.

In an attempt to compensate for the loss of the old benefits that were tied to the old state-owned, planned economy, now the regime attempted to introduce some form of social security, but widespread corruption in the system hampered its application.

Thus we see how over a twenty year period, after the fall of the Soviet Union, we have seen in Syria a long process of a gradual breaking down of the planned economy and the introduction of more and more elements of capitalism, leading eventually to the present crony capitalist system.

All this explains the confusion among some on the left. Some, as we have seen above, have continued to support the Assad regime in spite of the popular uprising, and their excuse for doing so, as we have seen, is that the regime is somehow progressive and anti-imperialist. It is, of course, nothing of the kind, as the facts and figures in this article amply demonstrate.

Others on the left blindly support the opposition as a whole, preferring to ignore the fact that the real revolution that erupted in 2011 has been hijacked by different reactionary groupings. This can only be explained by the fact that the Syrian revolution did not find the required leadership that would have been capable of transforming it into a socialist revolution. The revolution exploded under the impact of the Tunisian and Egyptian revolutions. The masses wanted an end to both the growing social and economic problems and the dictatorship of Assad, but have not found a party capable of uniting the whole of the working population, the youth, the unemployed, the poor, in a joint struggle against the dictatorship.

What is to be done?

Because of all this, the situation is now far more complicated. Many revolutionary youth are still fighting to remove the hated dictator and all his hangers on. But what determines the real nature of the opposition as a whole is its leadership and its programme.

It is true that some sections of the Free Syrian Army have clashed with the fundamentalists that they see as having hijacked their revolution, but what is their alkternative? The programme is fundamentally one of bourgeois democracy at best, and Islamic fundamentalist reaction at worst.

We must speak the truth and explain honestly what has happened. We are for the downfall of Assad, but we are also against imperialist intervention and the manoeuvres of the reactionary regimes in the region.

As was explained in the IMT statement on the situation, Persepectives for revolution in the Middle East - Part Two,

"What would very quickly bring down the regime would be a Syria-wide general strike that could paralyse the country. To achieve this would require the presence of a party capable of uniting all the workers and poor around it. This could only be achieved if such a party had a programme that could offer solutions to all the burning economic and social problems that afflict large layers of the population.”

We also explained the following:

“The fact is that the solution to the crisis in Syria is to be found in Egypt and Tunisia – and perhaps even more so, Iran. No solution can be found within the narrow borders of Syria. Even with a healthy, mass revolutionary socialist party in Syria, the final solution would not be found within Syria itself. Even if there were to be a successful socialist revolution in Syria today, in order for such a revolution to survive it would have to spread beyond its borders, into Turkey, into Iran and beyond. And most importantly, it would require a socialist victory in Egypt, which is the biggest Arab country, with the largest working class, that can give a lead to the workers and youth in the whole of the Middle East.

“We must explain all this to the best elements within the Syrian youth. We need to develop a clear Marxist analysis and look at the long-term, explaining the reality of the situation. The Assad regime will eventually collapse, but how it collapses and who brings the regime down is as important as the downfall of the regime itself. In Libya we see the consequences of regime change achieved with the aid of the imperialists – chaos and confusion and the imperialists still manipulating from outside. The problems of the Libyan working people have not been solved; on the contrary they are getting worse. The same will apply to Syria if Assad is overthrown by militias that are aided and backed by the reactionary Gulf States and by the western imperialists.

“Nonetheless, eventually the situation will be stabilised and the workers will find their feet. They will begin to organise; trade union organisations will be created by the workers as they move to defend their interests. Eventually the labour movement will emerge as a force as it dawns on the masses that the downfall of the Assad in and of itself will not have solved anything fundamental. Therefore what the most advanced workers and youth must do is prepare for the future in creating a Syrian Marxist opposition. Such an opposition would have a big role to play in the future.”